Otsego sick of paying hospital tax

A potentially big revolt is brewing in the tiny Wright County town of Otsego.

It is not quite taxation without representation, but city residents do not believe they are getting their money's worth from annual payments made to New River Medical Center.

The tax payments, totaling about $300,000 each year, are made because New River is a hospital district, a legal entity with taxing authority much like a school district.

The issue is so contentious that Otsego, about 33 miles northwest of Minneapolis, filed suit against the hospital. The city maintains that its taxpayers, who pay an average of about $50 annually to the district, get little or no benefit now that they are served by larger hospitals in the Twin Cities area.

Should the city win, it could lead to the breakup of the district. Even if it does not, it has opened a debate about whether such districts are still needed.

Like school districts, hospital districts collect annual taxes to keep operating. There is also an elected board that runs the hospital and sets the tax rate each year.

In Otsego, city officials say many people do not even know that they are paying taxes to help support the hospital.

Outlived their usefulness?

Hospital districts were once popular in rural areas where medical facilities were few and far between. Over the decades these districts, which operate as community hospitals, have become an anachronism, especially with the growth of cities and the emergence of large-scale medical facilities.

Even New River, known for decades as Monticello-Big Lake Hospital, is questioning the district's future. This summer, it formed a committee to spend a year reviewing whether it should continue collecting taxes.

District taxes account for a small part of the nonprofit medical center's annual income. But in the past 50 years or so, Otsego and six other communities in the district have paid tens of millions of dollars.

Last year, in an unusual move, the city filed a request with New River to be excluded from the tax district.

"We don't feel we get enough benefit for what we pay in each year," said Mike Robertson, Otsego's city administrator. "We pay the second-most into the district but we have one of the lowest usages."

The hospital's board decided in a 6-2 vote last October to make Otsego keep paying into the district.

"This was the first time we had received such a request," said Joni Pawelk, New River's director of marketing. "The board felt it was best to keep the city in the district."

Ruling expected by August

The city sued the hospital to reverse the decision, claiming that the original intent of the district's creation is no longer valid because Otsego's 14,000 residents now have more options for medical care.

The matter is now before the Minnesota Court of Appeals, which is expected to rule by August.

"We would just like to get out of the district," Robertson said. "The case law on this is very, very limited."

If Otsego goes, will others?

Apart from the tax implications for Otsego residents, the case has revived questions of whether hospital districts are still needed.

"It's an old law and kind of cumbersome in some ways," said Agosto, who voted to allow Otsego to leave. "I think they proved their case."

The hospital district was created in 1960, and the 25-bed hospital opened in 1965. It served residents of mostly rural areas such as Otsego, Monticello and Big Lake who needed sophisticated medical aid close to where they lived.

"The residents felt it was important to keep that health care local," said Pawelk, which is why residents voted to tax themselves each year.

The increase in medical facilities and options has made such districts less urgent. As a result, there is concern that if Otsego succeeds in bolting, others could follow suit.

"That potential does exist," Pawelk said, "although we don't have any immediate concern of that right now. I can't say what the future will be."